Edited version of your written advice

Authorisation Number: 1051176256535

Date of advice: 22 December 2016

Ruling

Subject: Small Business Concessions - Active Asset

Question 1

Do your interests in the commercial property rental units satisfy the active asset test in section 152-35 of the Income Tax Assessment Act 1997?

Answer

Yes

This ruling applies for the following period:

1 July 2015 to 30 June 2016

The scheme commences on:

1 July 198X

Relevant facts and circumstances

The taxpayer previously owned interests in X units of commercial rental property (the properties) as a tenant in common with other individuals.

The taxpayer acquired their ownership interests in Y of the units on a date in 198X, and the other Y on a date in 200Y. The taxpayer owned a percentage of the properties. The taxpayer entered into a contract to sell their interests in the units on a date in 201Y and they sold their interests in the units in early 201Z.

The commercial units were used as the offices of a business in which the taxpayer's associate was a partner. Before a date in 200X the units were leased by a unit trust that was a service entity for the taxpayer's associate's professional partnership. Between a date in 200X and a date in 200Z the units were leased by a partnership of trusts that was the service entity of the taxpayer's associate's professional partnership.

The unit trust and the partnership of trusts rented the premises from the taxpayer and other owners and employed some staff. They received a service fee from the professional partnership for providing certain services. After a date in 200Z the units were leased directly by the taxpayer and the other owners to the professional partnership.

The taxpayer's associate progressively reduced their interest in the partnership by selling their interest to other partners in the firm. They disposed of their final interest on a date in 201X.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 152-35

Income Tax Assessment Act 1997 Section 152-40

Income Tax Assessment Act 1997 Section 152-47

Income Tax Assessment Act 1997 Section 328-130

Reasons for decision

Summary

The properties that the taxpayer has an ownership interest in have been used in business by their affiliate for a majority of the ownership period. They were active assets while being used in the business and accordingly they meet the active asset test.

Detailed reasoning

A CGT asset satisfies the active asset test if a taxpayer has owned it for more than 15 years and it was an active asset for at least seven and a half years of that time, or if a taxpayer has owned it for 15 years or less and it was an active asset for at least half of that time.

A CGT asset is an active asset at a given time if a taxpayer owns the asset and it is used in the course of carrying on a business in partnership by their affiliate. A particular associate is included as an affiliate for the purposes of the small business capital gains tax concessions. Where the main use of an asset is to derive rental income it is precluded from being an active asset, unless it is used by the taxpayer's affiliate or an entity connected with the taxpayer in the affiliate's or connected entity's business.

The properties were leased for the majority of the time that the taxpayer owned them to trust based service entities. These entities in turn provided business premises to a professional accounting firm.

The properties were used in carrying on a business by the taxpayer's affiliate, as a partner in the firm. Y units were used by the partnership business for more than seven and a half years of the more than 15 year ownership period, and Y units were used by the partnership for more than half of the less than 25 year ownership period.

Accordingly the properties have met the definition of active asset for most of the time that the taxpayer has owned them. They will qualify under the active asset test.